Employers must be involved in health insurance?

Written By: Jason Shafrin
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May•
28•08

At least Joe Paduda thinks so. His post today gives an example from the employer GTE. GTE was worried about ER and inpatient admissions rate for children with asthma. Why? Because employees who were single parents would miss work to take care of their children when they were sick.

Mr. Paduda’s argues convincingly that employers care about the health of their employees in order that they come to work and make profit for the company. Of course, individuals also have an incentive to maintain their health for personal reasons. Employers may be more worried about employees missing work if they are paid on a salaried basis; the cost of the lost time at work accrues mostly to the company. On the other hand, if an employee paid on an hourly basis without sick days, then the cost of missing work may fall more upon the employees.

The argument that employers prefer insurance benefits which return individuals to work and do not encourage them to stay at home is a key point. However, employers likely care more about maintaining healthy people’s health. This way they won’t miss work and the firm can recoup the training costs they invested in the employee. On the other hand, if an employee is stricken with a long-term, debilitating disease, the employer would prefer to get rid of the employee and not cover his medical costs whereas for the individual, the case of a drawn out, expensive, debilitating illness is exactly the reason they want insurance.

Thus, while there are many compelling reasons why insurance should be employment based (e.g., risk pooling, economies of scale, more choice than a single payer system), believing that employer’s can design a superior health insurance benefit schedule is not one of them.